Hiring Slows in U.S., Putting Pressure on Obama and Fed

A job fair on Thursday in San Diego. The economy added fewer jobs than expected in August.Credit
Sandy Huffaker/Getty Images

The nation’s employers eased up on hiring in August, making it clear that the economy was stuck in low gear.

The pace of job creation, disclosed in government figures released on Friday, fell far short of the stronger showing at the start of the year. It presents a fresh challenge to President Obama just two months before the election. It also provides more ammunition for Republicans, who say the country needs a new economic course.

While the weak report reverberated on the campaign trail, traders and economists immediately focused on the Federal Reserve, betting increasingly that its policy makers will take new action to stimulate the economy when they meet next week.

The nation added 96,000 jobs in August, compared with a revised figure of 141,000 in July and well below the 125,000 level economists had expected. Over the last six months, job growth has averaged 97,000 a month, typically not enough to absorb new entrants to the labor force, let alone cut the unemployment rate significantly.

“This is one of those reports that as you dig deeper, it looks less friendly,” said Ethan Harris, chief United States economist at Bank of America Merrill Lynch. “The improvement in the rate was purely due to people who gave up looking for jobs.”

For August, the jobless rate did fall to 8.1 percent from 8.3 percent in July, but that was largely because more people left the work force entirely. The government report showed that the overall labor force dropped by 368,000 workers in August. The portion of the population in the labor force fell to 63.5 percent, the lowest level since September 1981.

“Politically, you can spin the drop in the rate as a positive, but it’s a sign of weakness,” Mr. Harris said. “The economy is slowing down and it wasn’t very robust to begin with.”

As job growth in the United States has cooled in recent months, European economies have weakened as the debt crisis deepened there. And the Chinese economy has shown signs of a sharp slowdown recently.

Though the figures for August did not represent a drastic plunge in job creation from recent months — in June the economy created just 45,000 jobs — many experts quietly raised their forecasts ahead of the announcement by the Bureau of Labor Statistics. That optimism seemed to be supported by a drop in first-time unemployment claims on Thursday, as well as a report the same day from Automatic Data Processing, a private payroll firm, that showed a gain of 201,000 jobs in the private sector. A.D.P. tracks about 400,000 companies that are clients, Mr. Harris said, while the government statisticians capture a broader range of businesses.

For the Federal Reserve, Friday’s report provided more evidence of economic weakness. Economists said it raised the likelihood of action to stimulate the economy when the Fed’s Open Market committee convened on Wednesday and Thursday.

Just last week, Ben S. Bernanke, the chairman of the Federal Reserve, delivered a forceful argument for more action, calling the unemployment level a “grave concern.” Unemployment has been above 8 percent since February 2009.

One possible course would be another round of asset purchases intended to push down rates, making it easier for consumers and businesses to borrow and invest. A more limited option would be for the Fed to extend its commitment to a low benchmark interest rate, now near zero, into 2015 from late 2014.

Despite the weak jobs report, the Standard & Poor’s 500-stock index posted a slight gain on Friday, highlighting a conviction among many investors that the Fed will act. Many economists, though, are not so sure about how far the Fed will go.

Some, like Nigel Gault of IHS Global Insight, predicted a third round of so-called quantitative easing, with the Fed buying $500 billion to $600 billion worth of assets, mostly mortgage-backed securities, to try to lower rates.

Others, like Steve Blitz, chief economist at ITG Investment Research, predicted that the Fed would limit itself to extending the ultralow benchmark rate. He estimated a 60 percent chance that the Fed would extend the rate but only a 10 percent chance of another round of asset purchases.

“I don’t think the economy is quite as weak as the 96,000 figure suggests,” he said. “The Fed doesn’t react to one data point.”

One problem for the Fed is that more easing tends to lower the value of the dollar against foreign currencies, he said. Besides driving up the price of commodities like oil, it does little to help China or Europe avert a further slowdown.

The rate of job creation has been erratic in 2012. After adding more than 250,000 jobs in both January and February, the economy slowed. Job creation briefly recovered a bit in July, but few economists expect big gains in the coming months.

Sectors with growth in employment tended to be lower-paying ones, said Mark Vitner, a senior economist with Wells Fargo. About 40 percent of the new jobs came from four areas: retail, leisure and hospitality, temporary help services and home health care services. Manufacturing, a closely watched barometer for the economy, lost 15,000 jobs.

“This is one of the reasons wages haven’t been growing,” he said. “People are taking jobs they didn’t take in the past, moving from sectors like construction into jobs at lower-paying, big-box retailers.”

There were a few slivers of encouragement in Friday’s report. Using the broadest measure of unemployment, which includes part-time workers who want to work full time as well as individuals who are not looking for jobs but indicate they want to work, the unemployment rate fell to 14.7 percent from 15 percent.

The pace of government layoffs seems to be slowing, said Peter Cappelli, a professor of management at the Wharton School and director of the school’s Center for Human Resources. As the private sector added 103,000 jobs in August, governments cut just 7,000. That is down from 21,000 in July, and well below the average of 16,000 reductions a month since March. Federal employment actually increased by 3,000 in August, to 2.8 million, the first monthly increase since February 2011.

There was only slight relief for the long-term unemployed, defined as workers out of a job for at least 27 weeks. Their ranks fell by 152,000 to just over five million in August, and they account for 40 percent of all unemployed people. Among workers with less than a high school education, the unemployment rate fell to 12 percent from 12.7 percent, but that remains far above the 4.1 percent unemployment level for workers with a college degree or more.

Still, there were plenty of other signs the economy was still treading water. Average hourly earnings paid by private employers ticked downward by 1 cent in August, to $23.52, while the length of the typical private sector workweek remained flat at 34.4 hours. Both measures have barely budged from where they were six months ago.

A version of this article appears in print on September 8, 2012, on page A1 of the New York edition with the headline: Job Gains Slow, Posing Problem For Obama’s Bid. Order Reprints|Today's Paper|Subscribe